The Continually Growing USD 31 Billion Hole in GE’s Balance Sheet

After ignoring the massive issue this billion dollar hole has formed, the previous CEO named Jeffrey Immelt is now trying to calm the most verbal shareholders of General Electric Co. Meanwhile, this can be quite an expensive problem to repair for John Flannery, their newly anointed CEO.

Valued at USD 31 billion, the pension loss experienced by GE is 50 percent greater compared to other companies in the U.S. and it is the largest among the S&P 500 corporations. This shortfall have gotten worse over the past few years, while Immelt used up over USD 45 billion on share buybacks to appease activists, including Nelson Peltz, and to persuade Wall Street.

This is most likely related to the measly returns that have troubled pensions throughout corporate America, since the extremely low interest rates triumphed in the outcome of the monetary crisis. More significantly, GE’s predicament highlights deeper matters regarding the all-consuming emphasis on the instant outcomes of modern capitalism. Although, some suggest that this is careless and could eventually cause everybody, even their shareholders, worse off.

The executive director of the Pension Research Council and professor at the University of Pennsylvania’s Wharton School named Olivia Mitchell says there is an extreme pressure in the situation. She explains that buybacks openly utilize assets that are accessible not just to finance the pension promise, but to ensure that the shareholders are pleased.

For GE’s situation, extravagant shareholder rewards weren’t able to distribute massive returns and it will leave Flannery with less space to maneuver. He has to deal with their transportation businesses and flagging oil services, support their cash flow and increase their profits at the same time. Moreover, the 30-year GE veteran also has to watch out for the USD 50 million in pension debts that will be due in the next 20 years.

Flannery discussed his transition in his new position, along with his priorities all throughout a conference call. He says that it is critical for them to constantly be wary of the effect on all of their stakeholders, employees and customers, but most particularly to their shareholders.